Arbitration involving the Public Administration

08/11/2017

Vamilson José Costa

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Peculiarities that deserve attention

During a long time, obstacles to the use arbitration by the Public Administration have been created, under the argument that there would be conflicts between public interest and the private solution of controversies. However, the search for a fast solution of high quality to the litigations involving the Public Administration inevitably leads to the expansion and consolidation of the arbitration, which today is crucial to the attraction of foreign investments and to the development of the national economy.

The new wording of the Arbitration Law, as provided by Law No. 13129/215, definitively ended the resistances that existed regarding the possibility of arbitration to solve matters involving the Public Administration. The Arbitration Law has expressly provided, in its article 1, Paragraph First, that “the Public Administration, direct and indirect, may use arbitration to solve conflicts relating to alienable rights”.

Even though relevant, the innovation in the legislation has only consolidated that the Public Administration may be subject to arbitration, which had already been highly accepted by the practice, by the case law and even by several specific laws – as, for instance, the Law of Concessions and Permits (8987/1995), the Law of National Energy Policy (9478/1997), the Law of Electric Power Trade (10848/2004), the Law of Public-Private Partnerships (11079/2004), the Law of Natural Gas (11909/2009), the Law of Ports (12815/2013, amended by Decree No. 8465/2015).

Even though the resistances have unquestionably been overcome as to the legality of arbitration involving the Public Power, other difficulties and limitations remain. It seems, however, that many of the difficulties raised are not, in fact, solvable. A clear example of false obstacle refers to the hiring of the arbitrator and the arbitration institution. It is clear that the Public Administration is not obliged to perform a prior bidding procedure – after all, it is a typical case of bidding waiver – and it may, upon compliance with the administrative procedures, freely elect those people and entities it sees more competent. In this regard, however, it is important to highlight that the registration of arbitration institutes provided by the recent Law No. 13448, of June 4, 2017, represents a significant risk of setback, which will be the subject of the next article.

On the other hand, one cannot ignore that not all subjects relating to administrative agreements may be object of an arbitration clause; only the management acts and the effect in the wealth due to acts of the empire may be subject to an arbitration court. Accordingly, legal provisions prohibit arbitration based on equity and provide compliance with the publicity principle – which, as seen, also must not be interpreted as full and unrestrained disclosure of the entire procedure.

Finally, it is important to notice that even thought the Arbitration Law does not provide other limitations to the conventions and arbitration procedures involving the Public Power, many specific legislation that rule certain sectors or types of agreements determine that the procedure must be conducted in Portuguese, and that the arbitration must be held in Brazil. For instance, in case of litigations involving ports, the arbitration chamber must also be situated in the country. In case of agreements involved in Investment Partnerships Programs (PPI), the costs and expenses related to the arbitration procedure shall be anticipated by the private partner.